Online retailers clearing up smartphone stocks via pre-GST sales

Online retailers are going to offer various discounts on smartphones, tablets and mobile accessories like smartwatches. Discounts will be flooded for consumers by retailers like Amazon and Flipkart till month end to clear inventories sourced from states with less tax than the projected 12% GST that comes into effect from July.

Once GST kicks in, there will be no tax differential between states. Amazon has schedules its smartphone sales from June 19 – June 21 and would continue deals till stocks last and Flipkart will follow suit, according to three senior industry executives.

Paytm is already running smartphone deals including online exclusive brands and models in addition to popular handsets such as iPhones which were billed extensively to trade from Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Telangana where VAT on smartphones is the lowest at 5%.

Smartphone makers like Samsung, Micromax and Nokia have just issued recommendations to online and offline distributors and retailers that they will only reimburse for unsold stock of smartphones, tablets and accessories billed to trade 30 days prior to when GST begin and has asked them to sell old stock on priority basis.

Lower VAT in southern cities had made Hyderabad and Bengaluru the sourcing hub for online retailers who would sell across India where smartphones average VAT is 14%, making extra margin gains typically passed on as discount to buyers or added to the bottom line.

A senior industry official with a top handset maker said brands with both online and offline presence can balance it out since only trade partners in areas with low VAT are hit, while those with huge online presence will have to offer bigger discount. He also said “However, since average VAT on smartphones was 14%, net impact on bottom line will be positive for brands at end of the year”.

Micromax co-founder Rahul Sharma said that GST will balance equations between both offline and online market taxation and will be an appropriate and fine step.

“However, due to the mid-year change of taxation policy, we stand committed behind sales and distribution partners and to ensure they are not treated unfairly in the changing regime, the company is proposing compensation to partners affected by the change,” he said.